The thing that bothers me about subscription based models is that there is a non linear relationship between value to the customer and revenue. At some inflection point, increasing the value customer gets out of the product does not result in new subscriptions. Wherein, in pay per use models, existing customers will spend more when they get more value out of the product.
I have no idea how far away that inflection point is (there are 7+ billion of us, after all), and if this is even the right way to think about subscription based business models. But this is something that always bugged me about them.
We really don't have a good model for digital goods. In theory, the cost of goods should be roughly equal to the marginal cost of creating them. With physical goods, this mostly works out: amortizing the fixed costs and profit margin result in just a relativly small markup on the marginal cost.
With digital goods, and their near 0 marginal cost, this system fundamentally breaks down, and we are still just hacking together whatever solution we can get to kind of work.
This is not unique to digital goods. Products that rely on intellectual property have worked the same way for centuries. The cost of movies, drugs, books, etc. have nothing to do with their marginal cost.
I don't think gizmo686 had fully fleshed out their argument.
Digital goods do seem to be doing some wonky things that our previous models don't handle well. There is a combination of near zero marginal costs, near instantaneous global distribution, and near zero transaction costs. Before the internet, books and movies did not have those three properties.
It's not even just an intellectual property problem either, but one of any market with artificially constrained supply. See for instance OPEC-created oil prices and De Beers-created diamond prices.
In a way, you could argue that iTunes was the fracking of music sales, and that other markets need something similar.
The cost of goods should be the amortized startup cost plus the marginal cost. Startup costs can include the R&D and so on. “Intellectual property” is just one framework by which the startup costs can be recouped, but at the price of a major impedance mismatch.
Instead, the startup costs can be paid for in a collaborative framework (open source, wikipedia, and so on) and the growing snowball of results freely used and remixed in common by all, producing more results.
Then the marginal costs would be simply hosting and support. The questions of “but then who would make XYZ” have already been answered.
The question, though, is will we still have famous authors and heroes, or will our digital products be made 95% by the crowd. I think the latter. Wikipedia and open source have very few famous personalities - just the BDFLs that launched and run the project, and not specific creators of content.
For centuries, IP-based goods have had a significant marginal cost.
With the printing press, this cost went down, but it still took a significant effort to create a copy; giving that copy some independent value.
Digital media has practically zero marginal cost. So long as you are connected to someone with data, it is trivial, and practically free to copy that data.
There are efforts (DRM) to fill the void of marginal cost; but they are hacked together, and fundamentally flawed.
Price shouldn't be based on the cost of production, but rather the value derived by the buyer. As a consumer, I don't care at all what the manufacturer paid to make the thing. I only care what I get out of it and whether the money I gave is worth the value get out of it.
But in a competitive market, the price should converge toward the cost of production, or there would be arbitrage. At present, the price of digital goods is set by IP monopolies which are almost certainly mispricing them. But the alternative, due to the free cost to copy (vs. cost of production), would be zero.
The proper way forward should involve an IP protection regime where the period of protection is somewhat correlated with the time to produce rather than something arbitrary and fixed.
I'm not an expert, but : didn't that way of thinking lead us to all the modern ecological and ethical catastrophes ?
"Don't think about the cost, think about yourself".
As a consumer, I think about systems, and my actions have different outcomes on different horizons. If you don't tell me the complete truth (for example, by buying now at your specific price, I'm sacrificing options for the future), it is not fair.
It would be nice to have a standard forcing producers to add information about their products, to educate consumers. Like bio-labels and nutrients information on a food products.
I don't know how it would work for software. Maybe it would show to everyone that softwares should basically be free and open for the mass
>Price shouldn't be based on the cost of production, but rather the value derived by the buyer.
As to what price "should" or "shouldn't" be based on, I'm confused with the meaning here. Are you saying that we ought to change society such that this is true, or that when accounting we shouldn't consider the cost of production?
>As a consumer, I don't care at all what the manufacturer paid to make the thing.
This is exactly true, and actually this was recognised even by the classical economists and Marx: value (in labour hours) works behind the backs of both producers and consumers[0], because it is precisely socially determined by the market. Consider that if you spent hours making shoes nobody wanted, there are two explanations as to why you stopped eventually: (1) nobody "derived value" from them, (2) the labour embodied was not socially useful. These two claims are not actually in contradiction with one another.
A society in which price of a freely reproducible commodity (or some quantity transformable to price under the right conditions) is dependent on the cost of production is precisely one dependent on the value derived by all the buyers. You don't need to care about how long it took, because that's taken for you through the abstraction of labour. Nobody knows how long it took since to work out such a thing would be as futile as adding up the prices of the labour and tools required to make the good, the labour required to make those, the labour required to make those, to extract the raw materials to make those, to produce the electricity to power the machines etc. - all of this is taken care of and reflected in the final price.
Your argument is similar to the one put to Ricardo: pearls don't fetch high prices beacuse men dive for them, but rather, men dive for them because they fetch a high price. The fact that they fetch a high price is explained away along the lines of "people just find them desirable, it's just a matter of subjective preference/utility". Cockshott[1] asks us to think about it more: would the pearls fetch such a high price if they just washed up on the shore? And indeed, rich people wouldn't even want them any more - they want to be seen wearing something expensive that required a lot of time and effort to procure.
So Ricardo really says that the precondition for a commodity having "value" is that it is an object of demand. Marx roughly agreed, to which his theory of socially necessary labour time appears.
[0] "The different proportions in which different sorts of labour are reduced to unskilled labour as their standard, are established by a social process that goes on behind the backs of the producers, and, consequently, appear to be fixed by custom." - see also the theory of commodity fetishism which obscures the real concrete labour content in favour of its abstract representation in the Price-form.
[1] "Neither does it matter what people are willing to pay
for X. The market will be in equilibrium when demand equals supply at a price in line with labour content. If you’re not willing to pay that much, you don’t get any. If you’d be willing to pay a lot more you are in luck, you don’t have to. In the limiting case where nobody is willing to pay a price for X that corresponds to its labour content, X doesn’t get produced."
> Are you saying that we ought to change society such that this is true, or that when accounting we shouldn't consider the cost of production
Well, copyright was intended to "change society" to treat every copy as valuable as the original.
My issue with copyright is that it compels me to value something at exactly the price that the author demands; even though creating an exact copy neither costs the author anything, or even involves them.
The thing that bothers me about subscription models is that they reverse the power dynamic between a business and a customer. They are fundamentally 'pay us and maybe we'll produce something worthwhile, if not you can unsubscribe after you've already paid'. And it should be the other way around: 'we produce something and if you find it worthwhile, pay us'.
Asshole corps will always find ways to milk you dry but it might just become easier with the subscription.
From a purely intellectual perspective, this is one of the more interesting aspects to these new models. Effectively, your business model is, "what's the highest share of global discretionary income we can take while blanketing the planet with our product/service?" What you sell just needs to be good enough to keep retention at a level that enables this blanketing. Throw-in the addiction aspect to these new models as well as the monopolistic tendencies inherent to them, and what you end up with is a vision of taxing the globe for the relevant industry. To me, Netflix seems like a global tax on entertainment in some weird way (obviously, not a variable fee, so perhaps a 'toll' is more accurate).
I prefer buying media from Google Play and iTunes Store. Watching specific shows that I decided to buy seems like more of an entertainment event.
That said, I think Netflix is a good value, but there are very real opportunity costs to realize at the end of a weekend that I ‘binged’ on a series for 4 or 5 hours. Time is our most precious resource.
People are bad judges of value. Companies push subscriptions because people always over-susbcribe for the value they get. But even if they don't, just by virtue of a prepaid subscription, the sunk cost makes people consume more than they would if it were a metered service.
In fact the addition issue is tightly related to the subscription model. For Google and Facebook it's because the "subscription" is free. For Netflix and other consumptions it's because it's paid upfront. If every piece of content required a conscious decision of paying, people would automatically value their consumption properly and stop using.
I never paid for shows on itunes or wherever that had per episode prices, because I could never justify the cost. That's why I use subscription services. For the price of say 5 episodes at current prices, I end up with more than 3-4 episodes of value on Netflix.
One fix is to have strong competition from multiple services. Along with low switching costs and no lock-in. Then need for customer retention drives quality.
(This is another case where long copyright terms hurts consumers. If every streaming company could carry all movies over 20 years old, it would force them to compete more strongly.)
Their latest price increase is undoubtedly because their cash burn is really really high. Even despite their increase in prices they noted their burn rate would remain the same...which means they are spending a lot of money content.
Except if their increased value to the customer didn't give them this pricing power, you would expect increased prices to cause an overall drop in prices.
Prices are more about what the market will pay than about what a company needs to charge.
At least I see some interesting new original content now.
I wish they would try to create less, but more expensive content.
The superhero series are for example boring for me because they are cheaply produced (I usually watch them _just_ because of the animations).
Let me put it like this: I'd happily double my subscription payments (and I'm on the max tier already) if they offered the entire Babylon 5 series, just to show my support. Hell, the only reason I started using Netflix in the first place is because they had all Star Trek TV shows, including the remastered version of TNG. I also know I'm not the only one in my circle of friends who started using Netflix because of Star Trek, and who would fork extra money for some 80s/90s sci-fi shows, just to show their support.
thing is, that's the sort of thing that the original IP owners are trying to put on their own subscription services. I expect you'll end up finding them somewhere that's not Netflix. That's why Netflix is spending all this money for original content. They don't wanna be left with nothing as warner brothers, NBC universal, disney, etc all launch their own streaming services.
Yeah, I know. There's an ongoing process of balkanization of video streaming that started recently.
I just hope all those IP owners get what's coming to them for this failure to cooperate - namely, that all those HD streams get ripped and put on torrents, where people who don't have patience for this bullshit will be looking for them now.
Yes. We have entered a time where there is so much content no one can watch it all when it comes out. I routinely find older shows on Netflix/Prime (either original or network) that I missed when they came out. If I only watch TV for 1-2 hours/day, I now have weeks-months of content.
Same thing with movies. I just watched the new Han Solo movie on Netflix. It was decent, but I would not have ever watched it other than possibly on a flight.
My impression is that the "water cooler" effect is still very important for Netflix. "Hey, have you seen that new X show on Netflix with actress Y? Oh, you don't have Netflix? Let me send you an invite!"
It’s because one of their primary metrics is hours viewed. Netflix needs you constantly watching hours and hours of content so you feel you’re getting “value” and don’t cancel.
To do all of this, they constantly need to be financing new content, despite the fact that a lot of it isn’t very good.
I have no idea how far away that inflection point is (there are 7+ billion of us, after all), and if this is even the right way to think about subscription based business models. But this is something that always bugged me about them.